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Wednesday, 20 May 1942

Mr SPOONER (Robertson) .There are few things in this bill to which I take exception. The measure seeks to amend the Gift Duty Act 1941, which was introduced into this Parliament in December last. It appears that in the administration of that legislation the need for certain amendments has arisen. The most important amendment relates to the effect of the existing legislation upon transactions which were completed as between the donor and the donee before the commencement of the act. When the original bill was before the Parliament, the Government admitted the principle that transactions which had been completed as between the donor and the donee before the date on which the intention to introduce such a measure was announced, would not be subject to gift duty. The measure then introduced and amended was thought to meet that situation, but subsequent events have shown that it did not do so. The present bill has been drafted in order to overcome that defect. The Government has referred this bill to the same committee of members of all parties as considered the original measure. As to the effectiveness of this amendment, I rely upon the legal member of the Opposition party on the committee who was satisfied that the amendment would accomplish what it is designed to achieve. That being so, the bill serves a useful purpose in clearing a way any doubt that may have adversely .Tot-ted transactions which were not to be taxed by the Gift Duty Assessment Act when it was passed last December. It would be unjust, and I do not think that the . so intended, that transactions which had been completely satisfied before that date should subsequently become subject to gift duty.

The bill makes another important amendment in dealing with the valuations, which are placed upon shares in private companies for purposes of gift duty. A similar amendment is contained in the Estate Duty Bill 1942. The amendment has a background that indicate.the need for some alteration. Honorable members may be aware that, the method of valuing shares in public companies presents very few difficulties to the commissioners who administer the Estate Duty Act. and it i.~ expected that the valuation of such shares will present few difficulties to the authority who is charged with the administration of the Gift Duty Act. Public companies are listed upon stock exchanges, which have been able to assess the valuations of the shares, taking into account the various influences which go to make up a fair valuation. Stock exchanges have not been slow to recognize the earning capacity of shares in certain public companies, and have taken into account the nature of the undertaking, the assets, their realizability and other influences which affect the financial position of the company. They have not overlooked such factors as whether the company is amply capitalized, and if it is not, whether that might result in the company (being unable to stand the strain of special emergencies and weather any storm that might overtake it. As the result of long experience, stock exchanges have evolved accurate and reliable indicators of valuation, and do not fail to arrive at a reasonable estimate of the values of shares in public companies. For that reason, the valuation of such shares does not present many serious difficulties to the commissioners who are charged with the administration of the estate duty legislation, and other legislation such as the Gift Duty Act.

When we come to the affairs of private companies, the position is altogether different, because they are not listed on stock exchanges. In many cases, the shares are held by a comparatively few people and the articles of association contain restrictive clauses which make the transfer of shares, if not difficult, at least subject to onerous conditions. Sometimes the articles of association embody conditions which give to a governing director control over the appropriation of the company's income, and cause the company to disclose net earning* that are sub-normal. I mention those matters because evidently administrative difficulties have been found, and will be found in future, in placing valuations upon shares in private companies which are the subject of gilts or, in relation to other legislation, which are assets in a deceased estate. The Government has ?ought a way in which to overcome the difficulty. Clause 8 of this bill provides the machinery lor a commissioner to arrive at a valuation in a manner similar to that which would be followed by those who are responsible for arriving at the valuations of shares when they are the subject of stock exchange registrations. For that reason, I am entirely in agreement with proposed new paragraphs d and e of section 3 3 of the principal act. I regard the proposed new paragraph / as unnecessary, as the Commissioner may well rely upon proposed new paragraphs d and e. Paragraph / empowers the Commissioner to use an alternative method of computation of assets and liabilities, namely, the assumption that the company was being voluntarily wound up on the date that the gift was made. In its present form, that paragraph grants to the Commissioner an unfettered discretion to adopt that method of valuation if he so chooses, and to decide the amount that the shareholder would receive from the company if it were being wound up voluntarily. That paragraph, which was the subject of consideration by the allparty committee to which the Government referred the bill, will be amended. The Treasurer (Mr. Chifley) has already circulated proposed amendments that provide, in respect of clause S, for an appeal against the Commissioner's discretion and decision. Paragraph f, being unnecessary and redundant, should not have been included in the bill, but the Government deems it advisable to insert the provision and has agreed to improve the position by inserting in clause 8 a condition that any valuation by, and any discretion of the Commissioner, shall be subject to appeal.

Mr Jolly - To whom will the appeal be made?

Mr SPOONER - The appeal is to the Land Valuation Board in respect of valuations, and to the Income Tax Court of Appeal in respect of financial matters.

Mr Spender - On matters of law, the appeal would be to the High Court?

Mr SPOONER - Yes. I agree with the bill, although I consider that the alternative method of valuation should not have been included. The Commissioner will find it difficult to apply this clause; and if he does apply it, he may find it capable of doing an injustice to the donor or the donee. In other cases where he may seek to apply it, he may find that it will ricochet against himself, and that is not advisable. It is not right that there should be any unfavorable or favorable operation of the provision. However, the right of appeal will assist to stabilize the position. This provision is contained in similar legislation in Queensland and New South Wales, and I think that I am correct in saying that it has been used seldom and with very great caution. The necessity for that will be .recognized by honorable members. As the Government has agreed to provide the right of appeal, I am prepared to accept the bill, and the amendments that the Treasurer has circulated. The bill does not introduce into the act any other new principles, and I have no objection to k.

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